A distressed real estate property refers to real estate assets either under foreclosure, pre-foreclosure, or currently in the control of a lender/bank. There are many reasons for a property to be in pre-foreclosure and not every property that enters the dangerous pre-foreclosure stage, ends up in foreclosure and takeover by a lender. Another term common to the distressed real estate conversation, is so-called “REO Property.” REO stands for “Real Estate Owned” properties. This refers to a foreclosed property that has been reclaimed from a former mortgage (or trust deed) holder by a bank, lender or government agency.
Our experience with distressed real estate dates back the U.S. Savings & Loan crisis, and before. Back then, the national economic crisis involving the country’s savings and loan organizations prompted the formation of The Resolution Trust Corporation. The Resolution Trust Corp. operated from 1989 through 1995, and was a U.S. government-owned asset management company charged with liquidating primarily real estate assets of savings and loan organizations. On behalf of a major Saudi investment group, our company founder Donald Bredberg led bidding, negotiations and purchase of Banning Lewis Ranch in Colorado Springs. That 20-square-mile property was acquired for about $18.5 million at the time, a discount to the several hundred million that had been incurred in land assembly, entitlement, and infrastructure.
As noted, distressed real estate can exist anywhere in the continuum from “being in difficulty” to having already been taken over a lender. There are opportunities both for the current owner of such property, as well as investors looking for opportunistic and value-added situations among distressed properties.
StoneCreek Partners assist owners and acquirers of distressed real estate depending on the specific circumstances involved.
Current owners can “work out” the problems creating the distressed situation, such as renegotiating to retain anchor tenants, or replacing a departing major tenant. Retail tenant bankruptcies and Chapter 11 proceedings have been particularly common in the years prior to the Covid-19 Pandemic, and since then.
In other instances, a property may simply have become obsolescent with its deficiencies to the marketplace made all the more apparent over the difficulty of recent years. Repurposing or more comprehensive redevelopment may be in order, based upon the potential highest-and-best-use of the underlying real estate.